A successfully verified invoice must match the PO and receipt within acceptable tolerance levels. An invoice that fails matching tolerances is placed on hold and is sent for appropriate review. This AP process guarantees that what is delivered matches the original order every time. 3-way matching is a secure method of preventing overpayments and, subsequently, monetary losses. Additionally, the AP team can be empowered to determine the best course of action when they encounter a discrepancy. They can decide if they want to pre-pay the amount, or reach out to the vendor for credit, or find another possible solution.

  • Timely notification of issues during the 3-way match of sales, 3-way match of receiving, 3-way PO match, or 3-way invoice match, ensures that payment to suppliers is done on time.
  • Thus, they can apply the 3-Way Matching Procedure to help manage invoices in a more structured method.
  • Next, they check the PO and invoice against the order receipt (or receiving report).
  • The process can help the AP department make payments to the supplier more quickly, enabling the company to qualify for early payment discounts.
  • Commonly, these issues can be attributed to simple mistakes like transcription errors or shipment delays.

The information on the number of goods, unit price, discounts/rebates, delivery date, etc. are matched across all three documents. Manual processing causes delays and backlogs due to misplaced or missing information. Process bottlenecks result in delayed payments to suppliers, which in turn tarnishes the reputation of the company and weakens supplier relationships. Using the three-way match as a procedure to post procurement transactions enables the team to maintain a verified record of suppliers. It provides clear insights into supplies from vendors and money paid to suppliers. The receiving order specifies that a receiving officer has accepted the goods delivered by the supplier, and records the quantity, the delivery condition, and any other points applicable to note.

Control costs

Manual matching of thousands of supporting documents can be time-consuming, expensive and extremely labor-intensive. AP teams end up spending lots of man-hours manually hunting for every invoice, PO and receipt! Delays and errors force the accounts payable team to work overtime and could also bring on penalties for late payments. By 3 way matching free trucking invoice template supporting documents, companies can detect duplicate, erroneous, or fraudulent payments to vendors. Three way matching is best performed as an automated financial workflow powered by AP automation solutions such as Nanonets. Businesses must ensure their accounts payable (AP) departments verify the legitimacy and accuracy of every invoice they pay.

  • On analysis of the results, the AP team noticed that due to a transposition error, the price of the batteries was entered as Rs.7,520 instead of Rs.7,250 in the invoice.
  • In case of any mismatch between the purchase order and invoice, the payment against the invoice is kept on hold until the discrepancies are resolved.
  • Additionally, three-way matching allows you to quickly match the data on the invoice, purchase order, and goods receipt.
  • All the relevant paper documents need to be gathered in order to manually verify the goods and price information contained in them.
  • Based on the purchase order, the vendor will create an invoice for the items or services.
  • The automated matching system needs to be configured such that goods received are rechecked on an ongoing basis until the entire order is complete.

The mask vendor will provide you with a purchase order that will confirm the quantity (1,000) and cost of the items or services ($3,000). All of these steps (including the communications) are tracked and recorded in the accounts payable three-way match, creating an audit trail visible to auditors and regulators. If the 3 documents don’t match then the invoice is put on hold until the errors/issues are sorted. What if you discovered that as much as 2% of your business’s payments are duplicates, charged for the wrong amount, or contain some other error? In the event that issues or errors are detected, such as an incorrect price or a damaged product, payment will be withheld pending reconciliation of the issue. To be successfully verified, the invoices must satisfy matching tolerances.

Why Should You Automate the 3-Way Matching Process?

The above two steps are preliminary to creating the accounts payable process flowchart proper. The first few steps of your accounting flowchart will look something like this, with each step leading logically to the next. Now that you understand the basics of your accounts payable process, you’re ready to start creating a flowchart to keep your business (and your AP department) organized and efficient. Here are the most essential steps in designing an accounts payable process flowchart to keep your business running smoothly. Manual invoice matching can result in processing expenses that are hundreds or even millions of dollars more while attempting to prevent overpayment. Anytime you are subject to an audit, a solid audit trail that monitors the flow of money into and out of a corporation is essential.

What is 2-way and 3-way matching in Accounts Payable?

The AP team reached out to the vendor, who after realising their mistake, re-shared the correct invoice with the manufacturer. By doing this, it is simple to avoid becoming a victim of counterfeit bills or even real invoices with slightly altered numbers. Automating your procurement process is a fantastic approach to getting rid of fraud. 3-Way Match Accounts Payable is one of the most popular types of invoice matching in accounting. Before approving an invoice, a 3-way match is performed to ensure that the purchase order, invoice, and goods receipt all match. This makes sure that the information reflected on the customer’s order, the supplier’s delivery, and the goods receipt note (GRN) are all accurate.

Automated 3 Way PO Matching

Businesses should do this three-way matching to avoid costly errors, such as duplicate payments or payments for goods or services that were never received. Three-way matching is a process used in accounting to verify the legitimacy of supplier invoices before they are paid. The first step is gathering purchase orders, goods received notes and invoice information. This number is uniform across all three documents pertaining to the purchase. Once the PO, GRN, and invoice are gathered, the information they contain is verified.

Discover Our AP Automation Solutions

If the invoice, purchase order, and receipt all match correctly, then the accounts payable department approves the invoice for payment. 3-way matching is a system for verifying documents, such as purchase orders, delivery invoices, and supplier receipts, through a three-way method. The market is flooded with several workflow automation solutions for automating key business workflows. Businesses need to choose solutions that work best for their business needs. Cflow from Cavintek is a comprehensive workflow automation solution that provides fully customizable automated workflows for various business functions. Finance workflows like 3-way matching in accounting, invoice approvals, and expense reimbursements can be effectively automated with Cflow.

An invoice is a paper or EDI form document that is sent from the vendor to the buyer. Information contained in invoices is unique invoice numbers, vendor contact details, applicable discounts or credits, and the total amount due. To understand the three-way match in accounting better, let us first understand what invoices, purchase orders, and goods receipt notes are. The purchase order is an official confirmation receipt of the order sent by the buyer to the vendor.

Businesses that have switched from a manual procurement process with paper invoices to a completely automated system have seen some unbelievable results. They have more than proven the value and efficacy of automating the three-way matching process. Companies that choose to employ three-way matching do so to reduce mistakes, catch illegal activity, and save money. However, with a manual process, even when trying to avoid overpaying, businesses can often end up with much higher processing costs. It is very labor intensive, and it can be difficult to accumulate the required information, which can result in delayed payments while the accounts payable staff searches for missing information. Delays can annoy suppliers, and also prevent a company from taking early payment discounts.

Additionally, three-way matching allows you to quickly match the data on the invoice, purchase order, and goods receipt. As a result, you’ll experience greater accuracy while maintaining high security and financial control standards. According to a study from CFO.com, labor costs contribute to 62% of a typical company’s AP expenses. An invoice data capture tool automatically extracts information from your invoice. It uses this data to populate fields within a bill, including the vendor name, the amount you owe, and the due date.